A 10-year bond, with a par value equaling $1,000, pays 7% annually. If similar bonds are currently yielding 6% annually, what is the market value of the bond? Use semi-annual analysis.
A) $700.00
B) $927.50
C) $1,074.70
D) $1,520.70

Question

Quizplus · Accepted Answer

The bond's market value is calculated using the present value of its future cash flows, discounted at the current yield rate. With a 7% annual coupon rate, the bond pays $35 every six months. The bond has 20 periods (10 years x 2). The current yield is 6% annually, or 3% semi-annually. The present value of the bond's cash flows (coupons and par value) at a 3% semi-annual discount rate is approximately $1,074.70.

A 10-Year Bond, with a Par Value Equaling $1,000, Pays